This is an all too common story in investment litigation. An inexperienced investor’s portfolio shrinks while the broker profits.

Our client, a widow, entrusted her savings with a prominent broker and his firm. Having relied upon her deceased husband for such things, she had no prior significant investment experience and had no education or training in securities or personal finance.

When she opened the account, the broker recorded her investment objective in her account documents as “growth.” Rather than recommending growth investments, however, the broker recommended investments in small company stocks and began trading often. Almost immediately, he began selling stock short and incurring substantial margin interest costs.

Neither the investments nor the trading followed a growth strategy and, instead, put her principal at substantial risk. Within two years her portfolio had lost two-thirds of its value.

Most of the decrease was attributed to the broker’s mismanagement. He caused her to incur significant transaction costs and margin expense from short selling and turning over her portfolio more than six times in the two years. Also, the high-risk investments the broker recommended for her decreased in value during a time within which the Dow Jones Industrial Average increased in value 60%.

Fortunately, through arbitration we recovered nearly all her losses plus attorneys’ fees.

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